Case Study #31: Oakley Targets Very Deep Pockets to Purchase Its $4,000 C Six Shades, But Can Grow Position in Eyewear Category

There’s a lot one can do with $4,000. It can be someone’s mortgage, family vacation or a down payment on a new car. Oakley thinks that one can use to cover their eyes for functional and aesthetic purposes. Last month, the manufacturer of premium sunglasses, goggles, prescription eyewear, apparel, footwear and accessories, announces that it will sell a line of $4,000 C Six shades. The move comes at a time when the $200 billion luxury-products industry, once thought recession-proof, is spiraling downward. Luxury-product sales globally are expected to fall a hefty 8% in 2009, projects a Bain & Co. study (Horovitz, Bruce. “Oakley plans line of $4,000 sunglasses”. USA Today, October 25, 2009). According to this article, About 80 layers of costly carbon fiber, a material more common to the aerospace and motor sports industries, are pressed into the frame. The ultracostly material and design make the frames more flexible and comfortable for athletes. Oakley will limit the line to 200 pairs in the next year.

Assuming Oakley sells all 200 pairs in 2010, they will generate $800,000, a fraction of the company’s multi-million dollar revenue potential. Therefore, the profitability of the C Six shades will be a blip for the company’s overall profitability for 2010. The limited volume of the C-Six shades isn’t significant enough to move Oakley’s existing positive brand equity that is carried by the rest of its product portfolio. The exclusivity of the C-Six shades may drive incremental demand that may cause Oakley to re-forecast current production levels, but the market for ultra-luxury goods will not be booming in 2010. Why is the company moving forward with the strategy?

First, Oakley doesn’t independently execute the strategy. It partners with racing specialist Crosby Composites to make the C-Six shades. Instead of laying down sheets in the complex form, Crosby and Oakley mill the frames out of solid blocks of carbon fiber, each 40 layers deep, using state-of-the-art Computer Numerically Controlled (CNC) drills spinning at 10,000 rpm for 24 hours to create a single pair (Joesph, Noah. “Oakley C Six shades: CNC milled from solid carbon fiber bullet”. Autoblog, August 28, 2009). This is a partnership of complementary assets: Oakley notices a sales decline in its core product line and does not want to dilute its brand by creating flanker products. Nor does it want to push products through global retail promotions. Oakley must diversify in a streamlined way. The motorsports industry is contracting during the recession as sponsors allocate funding in other areas of marketing, so Crosby Composites can apply its core capabilities into a new consumer product. Working with Oakley can help Crosby Composites grow and diversify its existing client portfolio.

Second, Oakley cannot stop innovating just because it is operating in a recovering global recession. The entire brand is built on product innovation and performance. Any departure from that main associative brand property will be damaging to Oakley’s business in the long-term. To maintain and grow its leadership in the eyewear category, Oakley teams up with a materials expert to co-create a product that is targeted to a very niche audience. The product costs as a proportion of the C Six shade revenue is high, but low as a proportion to the company’s overall costs and revenue. Oakley has an opportunity to use an integrated online media strategy to promote its thought leadership in innovation, design, performance and functionality based on its partnership with Crosby Composites. The interactions across these channels can be quantified and will help Oakley create two-way, sales-driving discourse for its more affordable line of products. The C-Six is intended for very deep pockets. But it can also have an expected measurable effect on the entire brand and business if the market-facing tactics are properly executed.